Law Web: Whether Husband is Entitled To TDS Credit On Interest Earned From Amount Gifted To His Wife?

A careful perusal of sub-rule (2) indicates that where the

income, on which tax has been deducted at source, is assessable in the hands of a person other than deductee, then credit for the

proportionate tax deducted at source shall be given to such other

person and not the deductee. The proviso to sub-rule (2) provides

for deductee filing a declaration with the deductor giving

particulars of the other person to whom credit is to be given. On

receipt of such declaration, the deductor shall issue certificate for

the deduction of tax at source in the name of such other person.

The crux of section 199 read with Rule 37BA(2) is that if the

income, on which tax has been deducted at source, is chargeable

to tax in the hands of the recipient, then credit for such tax will be allowed to such recipient. If, however, the income is fully or

partly chargeable to tax in the hands of some other person because of the operation of any provision, like section 64 in the extant case, the proportionate credit for tax deducted at source should be allowed to such other person who is chargeable to tax in respect of such income, notwithstanding the fact that he is not the recipient of income. It is with a view to regularise the allowing of credit for tax deducted at source to the person other than recipient of income, that the proviso to Rule 37BA(2) has been enshrined necessitating the furnishing of particulars of such other person by the recipient for enabling the deductor to issue TDS certificate in the name of the other person. The proviso to Rule 37BA(2) is just a procedural aspect of giving effect to the mandate of section 199 for allowing credit to the other person in whose hands the income is chargeable to tax. The entire purpose of this exercise of allowing credit to the other person is to ensure that the benefit of tax deducted at source is availed once and that too, by the right person, who is chargeable to tax in respect of such income. It is just to streamline the procedure for giving effect to this intent and rule out the possibility of taking any inappropriate credit for the amount of tax deducted at source, firstly, by the recipient who is not chargeable to tax and secondly, by the person who is rightly chargeable to tax in respect of such income, that the procedural provision has been put in place in Rule 37BA(2). One needs to draw a line of distinction between substantive provision [section 199 read with Rule 37BA(2) without proviso] and the procedural provision [proviso to Rule 37BA(2)]. Non-compliance of a procedural provision, which is otherwise directory in nature, cannot disturb the writ of a substantive provision. {Para 6}

7. Adverting to the facts of the extant case, it is seen that out of

total interest income credited to assessee’s wife as per Form

No.26AS amounting to Rs.39.26 lakh, she included interest from

SBI in her total income to the extent of Rs.1,84,212/-. The

assessee included the remaining interest of Rs.37.42 lakh in his

income because of the applicability of section 64 of the Act. The

assesse and his wife claimed proportionate tax credit, which totals

up to Rs.2,94,474/-. This deciphers that the total interest income

received by the assessee’s wife got taxed partly in her own

assessment and partly in the assessment of her husband, the

assessee in question, as per the mandate of section 64. The

benefit of TDS has also been claimed accordingly. Merely

because the assessee’s wife did not furnish declaration to the bank

in terms of proviso to Rule 37BA(2), the amount of tax deducted

at source, which is otherwise with the Department, cannot be

allowed to remain with it eternally without allowing any

corresponding credit to the person who has been subjected to tax

in respect of such income. As the substantive provision of section

199 talks of granting credit for tax deducted at source to the other

person, who is lawfully taxable in respect of such income, we are

satisfied that the matching credit for tax deducted at source must

also be allowed to him. In view of the fact that the tax of

Rs.2,80,656/- has actually been deducted at source on the interest

income of Rs.37.42 lakh, we hold that the credit for such TDS

should be allowed to the assessee, who has been subjected to tax

in respect of such income. This ground is allowed.

IN THE INCOME TAX APPELLATE TRIBUNAL

PUNE BENCH, ‘A’ PUNE

BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND

SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER

आयकर अपील सं.

/ ITA No.675/PUN/2022

नधारण वष / Assessment Year : 2021-22

Anil Ratanlal Bohora, Vs. ACIT, Circle-1, Nashik

आदेश / ORDER

PER R.S. SYAL, VP :

Date of pronouncement 19-01-2023

This appeal by the assessee is directed against the order

dated 20-07-2022 passed by the ld. CIT(A) in National Faceless

Appeal Centre, Delhi u/s. 250 of the Income-tax Act, 1961

(hereinafter also called ‘the Act’) in relation to the assessment

year 2021-22.

2. The only issue pressed by the ld. AR is against not allowing

credit for tax deducted at source amounting to Rs.2,80,456/-.

3. Succinctly, the facts of the case are that the assessee filed

return declaring total income of Rs.8,42,68,650/-. An Intimation

was issued u/s.143(1) of the Act disallowing, inter alia, credit for

tax deducted at source amounting to Rs.2,80,456/- on interest

income. According to the CPC, Form No.26AS did not

contain/contained partial amount of TDS with respect to TAN

mentioned in schedule TDS 1/TDS 2/TCS. The assessee

appealed against the Intimation issued u/s 143(1) submitting

before the ld. CIT(A) that he gifted certain amount to his wife, out

of which she made deposits with State Bank of India. As per

Form no. 26AS, she earned total interest income of

Rs.39,26,260/- with deduction of tax at source amounting to

Rs.2,94,474/-. Since the deposit was made out of the gift made

by him, the assessee included proportionate interest income in his

total income u/s.64 and also claimed credit for proportionate tax

deducted at source. The ld. CIT(A) observed that the provisions

of Rule 37BA(2) were not complied with and as a result, the

assessee was not entitled to the credit for deduction of tax at

source. This has brought the assessee before the Tribunal.

4. We have heard both the sides and gone through the relevant

material on record. It is undisputed that the assessee gifted certain

amount to his wife, who, in turn, made deposits of such sum with

State Bank of India. Total interest income of Rs.39.26 lakh

enured in her hands, which included interest income of

Rs.37,42,048/- earned from deposits made with the amount gifted

by the assessee. Considering the provisions of section 64, the

assessee suo motu included such interest income of Rs.37.42 lakh

in his total income and claimed credit for the proportionate tax

deducted at source at Rs.2,80,656/-, which got denied by the

authorities on the ground that the mandate of Rule 37BA was not

fulfilled.

5. Section 199(1) of the Act, with the marginal note `Credit for

tax deducted’, provides through sub-section (1) that the amount of

tax deducted at source on the amount of income shall be treated as

payment of tax on behalf of deductee. Sub-section (3) of section

199 is relevant for our purpose, whose material part states that:

`The Board may, for the purposes of giving credit in respect of tax

deducted or tax paid in terms of the provisions of this Chapter,

make such rules as may be necessary, including the rules for the

purposes of giving credit to a person other than those referred to

in sub-section (1) and sub-section (2) ….’. Thus it is overt that

sub-section (3) recognises that where the income on which tax

was deducted at source in the hands of ‘A’, is actually chargeable

to tax in the hands of ‘B’, credit for tax deducted at source on

such income shall be allowed to ‘B’. The relevant rule is 37BA

with a caption “Credit for tax deducted at source for the purposes

of section 199”. Sub-rule (1) provides that credit for tax deducted

at source shall be given to the person to whom payment has been

made or credit has been given. Sub-rule (2) is significant for our

purpose, whose relevant part states as under :

`(2) (i) where under any provisions of the Act, the whole or any

part of the income on which tax has been deducted at source is

assessable in the hands of a person other than the deductee,

credit for the whole or any part of the tax deducted at source,

as the case may be, shall be given to the other person and not

to the deductee:

Provided that the deductee files a declaration with the deductor

and the deductor reports the tax deduction in the name of the

other person in the information relating to deduction of tax

referred to in sub-rule (1).

(ii) The declaration filed by the deductee under clause (i) shall

contain the name, address, permanent account number of the

person to whom credit is to be given, payment or credit in

relation to which credit is to be given and reasons for giving

credit to such person.

(iii) The deductor shall issue the certificate for deduction of tax

at source in the name of the person in whose name credit is

shown in the information relating to deduction of tax referred

to in sub-rule (1) and shall keep the declaration in his safe

custody.’

6. A careful perusal of sub-rule (2) indicates that where the

income, on which tax has been deducted at source, is assessable in

the hands of a person other than deductee, then credit for the